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Real Estate & ConstructionJanuary 2016
It doesn’t take a Brit’s obsessive attention to small variations in the weather to see that something unusual has been going on lately. With warm air blowing in from the South and West right up until we went to press just before Christmas, it’s been unseasonably warm across large parts of the UK, and wet and windy everywhere.
Flooding has already taken its toll on homes and business premises, with Storm Desmond leaving 60,000 homes in the North West without power after more than 13 inches of rain fell in 24 hours. There’s every chance we’ll witness further flooding and/or storm damage as this record breaking so-called winter plays out.
The extensive damage to small commercial premises resulting from the Cumbria floods has highlighted the absence of a commercial equivalent to Flood Re, now finally due to launch this April. The Government will now be under pressure to revisit its aspiration of providing some kind of support mechanism for flood-affected business.
One way or another, the rights, wrongs, hows and whys of building in potentially flood prone areas will remain a hot topic for some time to come. One thing of which no-one can be in any doubt, however, is the need for urgent and extensive residential development.
This need has helped focus attention on the desirability of building on brownfield sites, with all the issues of clean-up costs and subsequent liability that come with it. In this issue, Lockton Partner Ian Blackadder takes a look at the current state of play with building on contaminated land in the wake of the Chancellor’s granting of automatic planning permission for brownfield developments.
A major threat to domestic properties across the UK is Japanese Knotweed, an invasive species that can spread at truly spectacular speed during its growing season in the warmer months of the year, tearing up foundations and invading downstairs rooms as it goes. In this issue we bring you news of a new insurance solution from Countrywide Legal Indemnities for a problem that can quickly wipe hundreds of thousands off a property’s value if left untreated.
Finally, we would like to take this opportunity to wish all our readers a happy, safe and prosperous new year, one in which we hope our sector and the broader UK economy will continue to gain in strength, vitality and resilience.
If you would like further information on any of the topics covered in this edition, please get in touch with a member of our team at Lockton Real Estate & Construction or email us on [email protected].
WELCOME TO THE LATEST ISSUE OF OUR MARKET WATCH NEWSLETTER
This newsletter does not purport to be comprehensive or to give legal advice. While every effort has been made to ensure accuracy, Lockton Companies LLP cannot be held liable for any errors, omissions or inaccuracies contained within the document. Readers should not act upon (or refrain from acting upon) information in this document without first asking further specialist or professional advice. A division of Lockton Companies LLP, authorised and regulated by the Financial Conduct Authority. A Lloyd’s broker. Registered in England & Wales at The St Botolph Building, 138 Houndsditch, London, EC3A 7AG. Company No. OC353198
HAVE YOUR SAYIf you have any comments on this edition of our newsletter or would like to contribute an article to a future edition, please contact us at [email protected]
Steve Bracey Managing Partner Real Estate & Construction
Tel: +44 (0)20 7933 2193Mobile: +44 (0)7803 005 035Email: [email protected]
THE TREASURY TARGETS INCREASED INCOME FROM THE INSURANCE SECTOR
Britain is simply not building anywhere near enough homes to cope with demand. In what is one of the biggest challenges our nation has faced in modern times, Britain is simply not building anywhere near enough homes to cope with demand. It is a basic, uncomfortable and very public truth.
The Chancellor’s recent planning reforms, announced in Birmingham the day after the Budget, outlined a range of measures to tackle this shortage. Three of the most significant changes involve former industrial (‘brownfield’) sites.
One reform which really set the tone for Osborne’s vision of a housebuilding Britain was automatic planning permission for all suitable brownfield sites. By removing the need for the relevant local authority to grant permission to developers to begin construction, the aim is fewer delays in building the much-needed homes.
Whilst there can be little argument that these are positive steps by the Government to reduce the housing deficit, these reforms do not give developers a carte blanche and nor do they make brownfield sites an easy option. There are many risks associated with former industrial sites after the planning stage that developers need to be aware of and actively limit their exposure to.
Judicial review coverage is a must for developers when planning consent has been granted but where there are concerns a legal challenge could be raised. Experience clearly shows that these can be extremely costly and detrimental to construction timetables. Cover for claims based on a party’s right of light is also in great demand as urban growth in limited space usually dictates taller buildings. Both these exposures can impact on a scheme at any point during the development of a site and can be expensive to settle.
It is the environmental risks associated with former industrial sites, however, which can pose real financial risks for developers. All new owners of a brownfield site are responsible for the clean up of that area, a task which can be both expensive and lengthy. Moreover by law the new owner can be held liable for past industrial operations and third party claims for historic and current contamination and pollution. Costs for these can be underwritten and will prepare the developer should a claim be brought or an unexpected discovery be made during the cleaning up operation.
George Osborne is right in believing the regeneration of brownfield sites could provide Britain with many of the houses it desperately needs. With government subsidies and their often central location in some of the country’s biggest cities, they provide developers with an attractive investment opportunity, although risks remain that developers certainly need to be wary of.
THE TREASURY TARGETS INCREASED INCOME FROM THE INSURANCE SECTOR
Ian Blackadder, Partner Contingent & Special Risk Practice Leader
Tel: +44 (0)20 7933 2764Mobile: +44 (0)7795 800 494Email: [email protected]
RIGHTS TO LIGHT: ARE INJUNCTIONS A THING OF THE PAST?
Ground-breaking cover for a growing problemWith lush green leaves and dainty cream flowers growing from its bamboo-like stems, fallopia japonica, or Japanese knotweed as it is commonly known, was introduced to the UK in Victorian times as an ornamental plant.
Unfortunately, in doing so, the Victorians unwittingly unleashed a monster. Little did they know that knotweed is an invasive plant that spreads relentlessly; in the springtime through to summer, it can grow at a spectacular rate of up to four inches a day. It can reach heights of up to four metres and can grow to a similar size below ground level too.
Neither is it limited only to patches of earth; it can prosper beneath concrete and tarmac, causing damage to buildings, roads, driveways and drains.
Little surprise then that Japanese knotweed is described by the Environment Agency as the UK’s ‘most aggressive and destructive plant.’ And such is the problem, that the Government introduced legislative
changes at the end of 2014 which could potentially see landowners issued with anti-social behaviour orders (ASBOs) if they fail to control the spread of invasive plants such as knotweed.
Transaction troubleAs you can imagine, for property owners, the presence of knotweed is a nightmare. For those looking to sell a property, knotweed poses a huge problem, as it can knock significant amounts from the property’s value, or in extreme cases, render it completely unsaleable.
Buyers too may find that their lender is none too keen to lend on a property where a potential problem may exist. A number of lenders, including HSBC and Barclays, have been known to refuse mortgage applications if the plant is discovered at the property, or even at a neighbouring property. Some lenders may insist on a specialist survey and professional treatment with a guarantee before they are prepared to make a
mortgage offer.
RIGHTS TO LIGHT: ARE INJUNCTIONS A THING OF THE PAST?
£166m – the estimated annual cost to the UK economy in treatment fees and home devaluations
4 metres – the height the plant can reach between early spring and early summer
£70m – the reported cost of removing knotweed from the Olympic site in Stratford
9.2 – the % of rivers and canals in England and Wales infested with knotweed
£1.5bn – DEFRA’s estimate of the cost of controlling knotweed across the UK
Knot a problem!Countrywide Legal Indemnities have created its innovative, new Japanese Knotweed indemnity policy to offer certainty and provide protection against the potential financial costs and physical damage caused by the future discovery of knotweed. The policy offers cover in the event that knotweed is discovered at the property after the policy commencement date.
It insures the property buyers, their mortgagees, lessees and successors in title for:
• the cost of obtaining a survey report from a knotweed treatment specialist to establish a claim
• treatment costs to eradicate knotweed
• repair and restoration costs for any damage caused by knotweed
• legal defence expenses incurred to handle any claim from a third party affected by the spread of knotweed.
The policy can cover existing and new-build residential properties, as well as existing commercial properties. Property owners are covered for 10 years, while lenders are covered for the full term of the mortgage, provided it is taken out within the period of insurance. Premiums start from as little as £65 for a £100,000 limit of indemnity.
For more information or to obtain a quote, please contact Countrywide or speak to your usual Lockton representative.
RIGHTS TO LIGHT: ARE INJUNCTIONS A THING OF THE PAST?
Case study
Knotweed invasion causes huge loss in valueA couple's house dropped in value by more than £250,000 – due to a Japanese knotweed invasion.
Matthew Jones and Sue Banks from Broxbourne, Hertfordshire, had seen the value of their home plummet from more than £300,000 down to just £50,000 due to the invasive plants. And they were told that unless action was taken, their home would be impossible to sell.
The weed was discovered in the garden of their new-build house after they had been living there for little more than a month, and just a few months later it was found growing in the dining room.
Mr Jones explained that he first discovered the plant after it had made its way into his garden from a nearby field: "I was out in the garden and I noticed some stems coming through the lawn. They were like asparagus tips but they had a reddish tinge to them. I had never seen anything like that before. I went to bed and in the morning it had grown a couple of inches."
Broxbourne Borough Council sent an environmental specialist along who identified Japanese knotweed straight away and advised the couple to contact a solicitor immediately. Just two months later it had forced its way into the house through the flooring and skirting boards. Experts advised that demolishing the house and removing the soil will provide a permanent eradication.
Ms Banks said: "This was supposed to be our dream home; we were so excited about moving in and starting our life together."
Neil Phillips, Marketing ManagerAssociate DirectorCountrywide Legal Indemnity
Tel: +44 (0)1603 617617 Email: [email protected]
CONTROVERSIAL RIGHT TO RENT
Since 2008, it has (subject to limited exceptions) been compulsory to supply an energy performance certificate (EPC) for any property, commercial or residential, being let or sold. Most clients will now be familiar with the grading that EPCs confer on a property, an “A” rating being the most energy efficient and a “G” rating the least efficient. It would be fair to say that EPCs have, until recently, had little effect on the property market. However, we are now starting to see some tenants and buyers either threatening to pull out of transactions because the property has a low EPC rating, requiring the landlord or seller to carry out works to improve the energy rating, or seeking to chip the price. As you will see when you read on, we expect this practice to become more widespread over the coming years.
Minimum “E” ratingThe Energy Efficiency Regulations 2015 provide that, with effect from April 2018, a landlord will not be allowed to grant a new lease of a commercial or residential building if it has an energy rating lower than an “E”. From April 2023 (or 2020 for residential property), existing leases will also be caught. From that date, a landlord will have a window of just six months in which to carry out any improvement works needed to bring the property up to an “E” rating. A landlord who fails to do so commits an offence.
It is important to note that a lease that does not comply with the Regulations will still be legally binding. However, the landlord will be at risk of fines of up to 20% of the property’s rateable value (to a maximum of £150,000). Offending landlords may also be “named and shamed” on a public register.
There are various exemptions and, as ever, the devil is in the detail. Long leases (99 years plus) are not caught and neither are very short leases (six months or less). An exemption that we expect to see being used a lot is where the landlord has unsuccessfully tried to get the tenant’s consent to carry out energy improvement works. However, this exemption lasts only for five years and evidence of the steps that the landlord has taken to obtain consent must be filed.
This rather alarming legislation has been waiting in the wings for quite a while. The relevant provisions, but not the detail, were included in the Energy Act 2011. It was understood that the industry would need time to carry out the necessary energy improvements so the implementation date was put back to 2018. However, little has happened in that time. Until recently, there was uncertainty whether the proposals would be modified or scrapped after the General Election. This probably contributed to a general lack of awareness among property owners. Without tangible benefits such as a return on their investment, very few landowners have carried out energy upgrades to their portfolio. It has been estimated that it will cost £29 billion to turn all the buildings in the country that are currently rated “F” or “G” into an “E”.
CONTROVERSIAL RIGHT TO RENT
Roy Perrott, Professional Support LawyerFladgate LLP
Tel: +44 (0)20 3036 7212 Email: [email protected]
ImplicationsWhat are the implications of the Regulations? The most obvious concern is the cost of upgrading property that does not currently comply. For a time, it was possible to spread the cost under the government’s “Green Deal” scheme but this was only ever available for domestic property and the scheme has, in any event, since been closed. Some in the property management sector might argue that improvements in energy efficiency are self-funding within a relatively short timeframe, however this is of little consequence to a landlord that is not in occupation and therefore not paying the bills.
It is thought that about 15% of commercial property in the UK is currently rated “F” or “G”. The logistics of upgrading 200,000 properties in three years are staggering. There is evidence that some lenders are now reluctant to lend on properties with an “F” or “G” rating. Some buyers are also starting to ask for price reductions. We have personal experience of a tenant refusing to take a new lease of a “G” rated building until works had been carried out to upgrade the building to an “E”. There is also the risk of complacency. A building with an “E” rating now may slip to an “F” or “G” when the EPC is renewed (EPCs only last for ten years). Even buildings that currently comply with the Regulations, therefore, may need energy improvements before the EPC expires.
LeasesLandlords have a lot to think about between now and 2018. It would be easy to rush into redrafting standard forms of lease but the issues are not straightforward. The tenant of a multi-let building, for instance, may object to being required to contribute to the cost of an energy upgrade through the service charge, especially if it cannot see a benefit from the works. The landlord may need a right of access to carry out the works but tenants will be concerned about the possible disruption to their business. Moreover, a right of access may be self-defeating if it prevents the landlord from claiming the five year exemption referred to above.
Greater control may be needed over tenant’s alterations for fear that those works may lower the building’s energy rating. What about the repairing covenant? Even premises with an “F” or “G” rating may be in good repair. Should the lease prohibit the tenant from doing anything that might push the building below an “E”? Should the yielding up clause require the tenant to yield up the premises with at least an “E” rating, and what effect would that have on rent review? Existing leases present similar challenges, with the added complication that, if the lease needs amending, the tenant needs to be persuaded to vary it.
CONTROVERSIAL RIGHT TO RENT
Daniel Polden, PartnerFladgate LLP
Tel: +44 (0)20 3036 7279 Email: [email protected]
UPCOMING EVENTS
Lockton Real Estate and Construction will be attending MIPIM 2016. If you would like to meet with a member of the team, please contact us on the details below:
MIPIM 201615-18 March 2016 - Palais des Festivals, Cannes, France
Richard Owen, Partner Member of LLP BoardChiefExecutiveOfficer-REACTel: +44 (0)20 7933 2452Mob: +44 (0)7776 [email protected]
Mark RosePartnerTel: +44 (0)20 7933 2621Mob: +44 (0)7880 [email protected]
Steve RustPartner Tel: +44 (0)20 7933 2459Mob: +44 (0)7901 [email protected]
Paul FeldmanPartner Tel: +44 (0)20 7933 2454Mob: +44 (0)7771 [email protected]
David HayhowPartnerTel: +44 (0)20 7933 2624Mob: +44 (0)7836 332 [email protected]
Jonathan HackettVice PresidentTel: +44 (0)20 7933 2781Mob: +44 (0)7507 [email protected]
UPCOMING EVENTS
Property Issues Seminar10February2016,Lockton-StBotolphBuilding
We are pleased to announce the speakers for our fourteenth LREAC seminar, and the first seminar of 2016, as follows:
“Terrorism - The Current Threat & Marauding Firearms Attacks (StaySafe)”Counter Terrorist Security Advisor, The City of London Police
“The impact of Crossrail on the London property market”Memory Crystal LLP
Agenda:09.00 – Registration10.00 – Presentations12.30 – Hot Buffet Lunch
In order to secure your place at our seminar and to ensure you don’t miss out, please contact:Rebecca Copley on 020 7933 2520 or email
Sponsored by AXA and in aid of The Brain Tumour Charity
From this event alone, over the past nine years we have raised over £60,000 for charities such as Help for Heroes, Macmillan Cancer Support, Whizz-Kidz, Alzheimer’s Society and Great Ormond Street Hospital. With the generous support from you, these charities have been able to continue their essential work by providing individuals and families with the support that they need.
This year we plan to add to the total by inviting you to come and play at our annual, fun filled, poker tournament on Thursday 10th March 2016.
Date: 10th March 2016
Venue: Playboy Club, 14 Old Park Lane, London, W1K 1ND
Time: 6:00pm to 11:30pm
If you think lady luck is on your side, why not come along and prove your poker skills. If you have never played before, have no fear, there will be a chance to practise before the tournament starts; and who knows, with beginners’ luck you may even win a part of the prize pot which totals £3,500!!
There are only 70 playing seats available with an additional 30 spectator spaces, and since we have had numerous enquiries about this event already, don’t delay. Get in contact today to reserve your place.
For more information and to reserve your space, please contact Rebecca Copley:020 7933 2520 or by email
Lockton REAC Charity Texas Hold’em Poker Tournament
Property Issues Seminar Wednesday 14th October 2015
Our last Property Issues Seminar was hosted on the 14th October and we hope that our guests enjoyed the presentations given by our guest speakers: Kieron Hodgson (Iceni Projects), Mark Brassey (Blake Morgan), James McWilliams (11 Stone Buildings), Thekla Fellas (Fladgate) and Dr Roger Bowdler (Historic England). Presentation topics included: planning risks, property fraud, telecoms aerials and the work of Historic England.
We would like to thank the presenters for their valuable time in preparing and delivering these presentations. Our next Property Issues Seminar will be held on Wednesday 10th February 2016. To reserve your place, please contact Rebecca Copley at
HIGHLIGHTS FROM RECENT EVENTS
From left to right: Dr Roger Bowdler (Historic England), Thekla Fellas (Fladgate), James McWilliams (11 Stone Buildings), Mark Brassey (Blake Morgan) and Kieron Hodgson (Iceni Projects).
Community Away DayThursday 22nd October 2015
On 22nd October 2015, the Lockton Real Estate & Construction team continued its programme of community events with a day at Homerton Adventure Playground in Hackney, as part of a Lloyd’s challenge. Twelve members of our Executive Committee swapped their suits for wellies and participated in digging, sawing and building to ensure the playground remains a safe environment for children to play.
Richard Owen commented: “While it was hard work, we had a thoroughly enjoyable and rewarding day. We hope our efforts will have a lasting effect in the playground, and we’re really happy to have helped with a very worthwhile cause. The adventure playground relies on volunteers to help maintain and revamp areas around the playground, which helps make the playground more welcoming and safe for children”